(This is not an exhaustive summary, but notes some differences & similarities between these documents)
WILLS:
A Last Will & Testament (“Will”) must go through the Probate Process. The Probate Process has been around for many decades and has become more streamlined in recent years. If the Will includes a provision for the administration to be unsupervised & the Court approves the unsupervised administration, the Executor/Personal Representative (“Executor”) does not need to get the Court’s permission to sell or transfer property, no inventory is required to be filed, and there are no hearings, barring a Will contest or objection to the administration.
Wills are filed with the Court and are public records. The beneficiaries named in the Will are given a copy of the Will. Other than individuals directly involved in an estate case (generally the Will’s beneficiaries and the estate attorney), it is rare for someone to go looking for a Will that has been filed.
Probate provides a time limit for notified creditors to file a claim for payment if the Executor does not feel it is a legitimate debt of the deceased. The creditor then must file a claim in the estate case. A hearing may be requested if the Executor denies the claim. Then, a Judge will determine if the claim is legitimate and is to be paid from the estate after hearing and weighing the evidence presented.
If the probate process is supervised, the Court will oversee the administration to some extent. The Executor must file an inventory of all the assets in which the deceased had an interest and of the debts owed by the deceased. The Executor must petition the Court and receive the authority to sell assets. Appraisals and valuations of assets may be necessary. The method of a sale may be determined by the Court as well. The Executor may be required to file certain reports during the administration and is required to make an accounting of all assets/funds that went into the estate and all cost/expenses that were paid from the estate as well as stating the distribution given to each beneficiary of the Will. A supervised estate administration can provide transparency for the beneficiaries of a Will. There are more attorney fees involved in a supervised estate administration.
A Will may contain a Testamentary Trust, which is a Trust that is not funded (does not have any assets) until the death of the Testator. The Will provides for assets to be put in a Trust after the Testator’s death. This type of trust may be used for a beneficiary who is a child or who needs protection from creditors.
A Will has no effect until the Testator’s death.
Wills are typically less expensive to create than Trusts. Costs of administration are paid from the estate after the Testator’s death.
TRUSTS:
A Trust avoids the Probate Process. A Trust transfers assets as soon as the Trustee can make it happen after the Grantor’s death.
A Trust typically has terms to be carried out during the Grantor’s lifetime. The Grantor is the creator of the Trust. This may include payments to named persons or entities and other provisions, such as requiring assets to be sold, an accounting be done, and other administrative tasks for the Trustee.
Trusts typically are not docketed with the Court, becoming as a public record. A trust may become a public record if there is a dispute. It is possible for an individual to obtain a copy of a Trust if they have standing or a meritorious reason. A Trust can be contested, and the administration of the Trust can also be challenged, which likely means a Court proceeding.
The tax consequences are the same with both documents. There is no Indiana Inheritance Tax for estates probated in Indiana. The Federal Estate Tax does not apply on estates under 13.31 million for an individual. Not all assets are subject to federal estate tax, such as life insurance death benefits or jointly owned property passing to the surviving owner.
Trusts require upkeep up during the Grantor’s lifetime. Refinancing, selling, trading, property that is titled in the Trust’s name can be more cumbersome. Assets must be transferred into the name of the Trust. If the Trust doesn’t own anything, it is of no value. Trusts operate during the Grantor’s lifetime and after the Grantor’s death.
Trust typically cost more upfront & during the Grantor’s lifetime to create the Trust and to maintain the Trust, ensuring assets are transferred into the Trust. There are also administrative costs for Trusts.
Certain Trusts may be created to protect assets. Examples are Spendthrift Trusts, Special Needs Trusts, and depending on the circumstances, Irrevocable Trusts.
Transferring appreciating assets at death can be a better option than during a person’s lifetime due to Indiana’s “stepped-up” basis given to the asset which is transferred after a person’s death. This avoids Capital Gains Tax for the increase in value that occurred during the lifetime of the deceased.
IT IS IMPORTANT TO MEET WITH AN ATTORNEY FOR YOUR ESTATE PLANNING. LEGAL DOCUMENTS PULLED OFF THE INTERNET CAN BE COSTLY AND HAVE UNFORTUNATE RESULTS DUE TO NOT BEING PROPERLY DRAFTED OR THE SIGNING PROCESS NOT MEETING THE REQUIREMENTS OF INDIANA LAW. IT IS WISE AND COST EFFECTIVE TO HAVE THE DOCUMENTS DRAFTED AND SIGNED AT THE DIRECTION OF AN ATTORNEY SO THEY ARE DONE CORRECTLY.
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